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Corporate Refinancing to Test Markets with N380bn of Bonds, Commercial Paper due 2020

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Nigerian Corporates are set to refinance about $1 billion (N380 billion) of maturing debt by the end of 2020, according to data compiled by MoneyCentral as they increasingly rely on fixed income markets to cater for their financing needs.

A total of N26.88 billion of bonds are due for maturity by December, in addition to an unprecedented N353.9 billion in commercial papers.

Commercial papers (CP) are unsecured debt instruments issued typically for the financing of a firm’s short-term liabilities, while bonds typically have longer tenors.

The CP market was resuscitated just in the past 4 years leading to a flood of issuance by corporates.

On the bond side Tier – 2 lender FCMB has N23 billion due by 06, November 2020, NAHCO N2.05 billion due 14 November 2020, C&I leasing N80 million due 25 November 2020, and Transcorp Hotels, N1.56 billion due December 2020. Transcorp is already seeking to raise N10 billion in a rights issue which may be used to pay off the bond.

Investors will be keeping a keen eye on the ability of Transcorp Hotels, NAHCO to refinance without hiccup and the yield the market will demand due to the negative effects of the coronavirus on their receivables as both firms play in the hard hit hospitality and aviation sectors.

Adding to the prospect of elevated supply and potential crowding out, is the Federal Government which will be seeking to finance a N5.2 trillion budget deficit equivalent to 3.6 percent of GDP this year, following the crash in oil prices and coronavirus induced economic slowdown.

Mixta Real Estate is particularly exposed on the short end of the curve with N16.7 billion in commercial papers due to be refinanced in 6 months.

Mixta has the lowest rating among the 15 companies with commercial papers due in 2020. Its business is also highly exposed negatively to the fallout from the coronavirus.

However, the companies may just be able to refinance, all be it at a steeper yield.

Institutional flows into corporate debt have proceeded at a record pace in recent months, with placements by Pension funds in local money market securities and corporate bonds jumping to 22.7 percent of their total assets under management of N9 trillion, compared with around 17 percent at the end of 2019, regulator Pencom data shows.

The Central Bank of Nigeria (CBN) policy banning Pension funds and other domestic non-bank investors from participating in its Open Market Operations (OMO) securities is a major reason for the shift, as funds moved their focus to high yielding but riskier fixed income investments.

Interest rates on Treasury Bills are at historical lows, so it makes sense for investors to seek the additional yield found in corporate bonds and commercial paper, compared with assets such as short term government securities.

Average yields on short term Nigerian Government paper has narrowed to 3.72% from 13% a year ago.

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